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The end of cheap Chinese labor?
Some of China's largest manufacturers are boosting their workers' pay by 100 percent. What does this mean for the world's third largest economy — and how could it affect the U.S.?
 
Foxconn, China's largest employer, will boost employee wages.
Foxconn, China's largest employer, will boost employee wages.
Corbis

In a dramatic shift, workers' wages are suddenly rising in China. Foxconn, China's largest employer and the focus of protests over its ongoing worker-suicide scandal, will more than double wages for many of its 800,000 laborers before October, and other manufacturers are following suit. But what is behind this "transformation in China's economy"? Will it really herald the end of low-cost labor in China? And what does that mean for the U.S.? (Watch a Bloomberg report about Foxconn's raised wages)

How much exactly is Foxconn going to pay its workers?
Foxconn, which currently employs about 800,000, says it will raise its minimum wage for Chinese workers by 30 percent on July 1, and by a further 66 percent in October for workers who pass a performance review. So a minimum-wage employee could see his monthly salary rise from 900 RMB ($131) to 2,000 RMB ($293).

Who else is giving their workers pay rises?
Honda will pay workers 24 percent more in pay and benefits; TPV Technology, the world's largest manufacturer of computer displays, which raised wages 15 percent in January, will up them by a further 15 to 20 percent later on this year. And local government employers are already increasing their wages in response to private sector pay-rises. It is a "long-term unstoppable trend," said analysts at Macquarie Group

Why is this happening now?
That's a "topic for great debate," says Andrew Leonard at Salon. The "cluster of suicides" at Foxconn (which produces high-tech devices for Apple, Hewlett-Packard and others) may be behind the rapid wage increase. And "good old-fashioned labor organisation" — that is, strike action — prompted Honda to act. But widespread inflation, a smaller labor market, and an increasingly educated, aspirational workforce unwilling to live in poverty could also be factors.

So is this the beginning of the end of low-cost labor in China?
Perhaps, though many point out that the country's manufacturing industry is largely based in the industrial fringes of the country, rather than the underdeveloped inland areas. If China pushes its manufacturing base inland, says Niranjan Rajadhyaksha at LiveMint, you might see the entry of "a billion low-wage Chinese into the global labor market" — undermining many of the hard-won wage increases we are seeing at the moment. That said, China's working-age population is likely to diminish in the next few years due to its one-child policy — meaning the labor force will become more competitive, and less vulnerable to exploitation.

What could widespread wage increases mean for China?
In theory, higher wages means wealthier workers and higher domestic consumption, which in turn could produce a healthier, more stable economy. But some warn that spiralling wage hikes often accompany lower productivity levels, which could stifle China's growing industrial sector and slow its GDP growth.

Will this mean more expensive goods in the U.S.?
Those worrying that their new iPhone will now cost more can relax for the moment. "Wage increases won't necessarily force significant price increases," write Andrew Batson and Norihiko Shirouzu at The Wall Street Journal, "in part because the companies still have ways to improve productivity and lower costs." In fact, a healthier domestic economy in China could be good news for the U.S, as it might improve the vast trade deficit between the two nations. 

Sources: Wall Street Journal, Salon, LiveMint, Financial Times

 

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